Wall Street: Tuesday close

A warning that a tech 'bubble' might be about to burst sent investors on another selling spree.

An early rally evaporated as investors returned from the three-day weekend honoring civil rights leader Martin Luther King Jr. The Dow Jones Industrial Average, which lost 2.2% last week, surrendered another 58.05 points or 0.59% to 9,713.80. The Nasdaq Index, down 4.6% in the last five sessions, tumbled 47.81 points or 2.48% to 1,882.54, a two-month low.

Helping stoke the sell-off was a research note from Richard Bernstein, chief US strategist at broker Merrill Lynch, suggesting that investors dump tech shares in favor of pharmaceuticals. 'The technology sector is selling at the highest relative price-to-earnings ratio in the history of our data, while the drug industry is selling at one of its lowest,' he wrote. 'Technology stocks significantly outperformed drug stocks during the fourth quarter and tech valuations, never terribly conservative to begin with, are now clearly stretched to bubble-like levels.'

Twin tech titans Intel and Microsoft led the sell-off, with Intel slumping $1.78 or 5.3% to $31.70 and Microsoft dropping $1.64 or 2.5% to $64.46. Sun Microsystems, which makes networking computers, was among the hardest hit, plummeting $1.16 or 9.6% to $10.96.

News in the broader market was mixed. Kmart, the century-old giant discount retailer famous for its 'blue light specials,' paid for its failed attempt to de-throne Wal-Mart by filing for bankruptcy protection. Kmart shares, at $13.55 within the past year, plunged $1.05 or 1% to 69 cents after the company said it would have to close stores and pay off $2bn. in debt if it hoped to re-emerge from bankruptcy next year. Wal-Mart, seen as the major beneficiary of Kmart's woes, rose $1.66 or 3% to $58.01, near a 52-week high.

Tyco International, the conglomerate which has been under a cloud on rumors abouts its accounting methods, saw its shares gained $1.10 or 2.4% to $47.55 after it said would split into four, sell its plastics subsidiaryand pay off $11bn. in debt because it was undervalued on Wall Street. The company had pursued an aggressive acquisitions strategy, buying dozens of companies in the past decade.

Lucent, the world's biggest telecom equipment maker, rose 25 cents or 3.7% to $6.94 after it said it could return to profitability by year's end.

Willamette Industries climbed $8.02 or 17% to $55.12 after it accepted a $6bn. offer from rival Weyerhaeuser, ending a 14-month takeover defence. International Paper, a major player in the same sector, added 69 cents or 1.8% to $38.91.